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(Mark Hulbert, an author and longtime investment columnist, is the founder of the Hulbert Financial Digest; his Hulbert Ratings audits investment newsletter returns.)
CHAPEL HILL, N.C. (Callaway Climate Insights) — ESG investing is making the climate warmer.
You read that right. Instead of incentivizing corporations to reduce their carbon footprints, investors who use ESG ratings to pick stocks are unwittingly making the problem worse.
That’s the unsettling conclusion of a study that last month began circulating in economic circles. The study is titled “ESG Ratings Undermine Portfolio Decarbonization,” and was conducted by Panos Patatoukas, a professor at the University of California at Berkely’s Haas School of Business, and Jinsung Hwang, a professor of business at South Korea’s Hankuk University of Foreign Studies.
The professors set out to discover if companies with high ESG ratings are more carbon efficient than lower-rated companies, as defined by having lower carbon intensity, or carbon emissions divided by revenue. They found just the opposite, however.